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Decillion - Acquisition Of The Cedef Group Of Companies (cedef)

Release Date: 27/05/1999 16:55:35      Code(s): DEC
DECILLION LIMITED
(FORMERLY PASSED "A" INVESTMENTS (PROPRIETARY) LIMITED)
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER 98/11692/06)
("DECILLION")
ACQUISITION OF THE CEDEF GROUP OF COMPANIES ("CEDEF")
1. INTRODUCTION
PURSUANT TO THE CAUTIONARY ANNOUNCEMENTS OF 31 MARCH 1999 AND 20 MAY 1999, AND
SUBJECT TO THE CONDITIONS PRECEDENT DETAILED IN PARAGRAPH 6 BELOW, SHAREHOLDERS
ARE ADVISED THAT DECILLION HAS ENTERED INTO AN AGREEMENT TO ACQUIRE 100% OF
CEDEF WITH EFFECT FROM 1 JANUARY 1999 ("THE EFFECTIVE DATE") ON THE TERMS
DETAILED IN PARAGRAPH 3 BELOW ("THE ACQUISTION").
2. NATURE OF BUSINESS OF CEDEF
CEDEF IS A REGULATED BROKER WHICH SPECIALISES IN ASSET SWAPS, CREDIT
DERIVATIVES, EMERGING MARKET BONDS AND INTEREST RATE PRODUCTS. CEDEF OPERATES
THROUGH A NUMBER OF COMPANIES BASED IN LONDON, NYON (SWITZERLAND) AND SYDNEY.
THE LONDON BUSINESS IS FOCUSED ON INTERBANK CLIENTS WHILE THE NYON BUSINESS IS
FOCUSED ON BOTH BANKS AND ASSET MANAGERS. CEDEF ALSO HAS AN INTEREST IN A HEDGE
FUND MANAGEMENT COMPANY.
CEDEF HAS STRONG RELATIONSHIPS IN MARKETS SUCH AS FRANCE, ITALY, BELGIUM,
GREECE, SOUTH AFRICA, SCANDINAVIA, POLAND AND THE CZECH REPUBLIC. NEW MARKETS
ARE CONTINUALLY TARGETED FOR FUTURE GROWTH.
VIRTUALLY ALL OF CEDEF'S REVENUE IS COMMISSION BASED.
3. TERMS OF THE ACQUISITION
CEDEF IS CURRENTLY WHOLLY OWNED BY ITS MANAGEMENT TEAM ("THE VENDORS"), THE
MEMBERS OF WHICH WILL ALL SIGN FIVE YEAR SERVICE CONTRACTS WITH DECILLION.
MARCO ESCRIBANO, SIMON RING, MAURIZIO MASOTTI AND MARK DUDLEY WILL CONTINUE TO
MANAGE CEDEF. MARCO ESCRIBANO AND MARK DUDLEY WILL BE APPOINTED TO THE BOARD OF
DIRECTORS OF DECILLION.
THE SALIENT TERMS OF THE ACQUISITION ARE AS FOLLOWS:
* THE VARIOUS COMPANIES COMPRISING CEDEF WILL BE CONSOLIDATED THROUGH A COMMON
HOLDING COMPANY AND DECILLION WILL ACQUIRE 100% OF THE SHARE CAPITAL OF THAT
HOLDING COMPANY;
* THE PURCHASE CONSIDERATION IS DEPENDENT ON THE AVERAGE OF CEDEF'S EARNINGS
FOR THE YEARS ENDED 31 DECEMBER 1998 AND 1999 ("THE BASE EARNINGS") AND THE
PERFORMANCE OF CEDEF FOR THE YEARS ENDING 31 DECEMBER 2000 AND 2001 RELATIVE TO
THE BASE EARNINGS;
* THE CONSIDERATION IS PAYABLE IN THREE TRANCHES OF 30%, 30% AND 40% ON 1 MAY
2000, 2001 AND 2002 RESPECTIVELY;
* THE CONSIDERATION PAYABLE IN RESPECT OF THE FIRST TRANCHE IS TO BE CALCULATED
ON THE BASE EARNINGS AND A PRICE:EARNINGS ("PE") MULTIPLE OF 5,5 TIMES AND THE
CONSIDERATION PAYABLE IN RESPECT OF THE REMAINING TRANCHES IS TO BE CALCULATED
BASED ON THE EARNINGS OF CEDEF FOR THE RELEVANT 12 MONTH PERIOD RELATIVE TO THE
BASE EARNINGS, THE RAND/SWISS FRANC ("CHF") EXCHANGE RATE AND DECILLION'S
AVERAGE PE MULTIPLE DURING MARCH AND APRIL OF THE YEAR OF PAYMENT;
* EACH TRANCHE OF THE PURCHASE CONSIDERATION WILL BE SETTLED IN FULL BY THE
ISSUE OF DECILLION SHARES TO THE VENDORS AT THE WEIGHTED AVERAGE TRADED PRICE
OF DECILLION SHARES ON THE JOHANNESBURG STOCK EXCHANGE ("JSE") DURING JANUARY
AND FEBRUARY OF THE YEAR OF PAYMENT;
* SUBSEQUENT REALISATIONS BY THE VENDORS OF SUCH SHARES ARE LIMITED TO 10% OF
EACH TRANCHE PER ANNUM FOR FIVE YEARS FROM THE EFFECTIVE DATE; AND
* CURRENT EARNINGS PROJECTIONS INDICATE A TOTAL ACQUISITION COST OF CHF 42,7
MILLION (R175,0 MILLION AT CURRENT EXCHANGE RATES). AT THE CURRENT DECILLION
SHARE PRICE, IT IS ESTIMATED THAT APPROXIMATELY 35 MILLION NEW DECILLION SHARES
WOULD NEED TO BE ISSUED IN SETTLEMENT OF THE PURCHASE CONSIDERATION.
4. RATIONALE FOR THE ACQUISITION
DECILLION HAS AS ONE OF ITS OBJECTIVES THE ESTABLISHMENT OF AN INTERNATIONAL
OPERATION. THE ACQUISITION OF CEDEF WILL PROVIDE THE PLATFORM TO ACHIEVE THIS
OBJECTIVE. CEDEF SERVICES CLIENTS WITH PRODUCTS THAT DECILLION IS FAMILIAR WITH
AND PROVIDES DECILLION WITH A LARGE OFFSHORE CLIENT CONTACT BASE. THE
STRUCTURING SKILLS OF THE DECILLION GROUP ARE COMPLEMENTED BY CEDEF'S BROAD
DISTRIBUTION AND PLACEMENT CAPACITY. CEDEF HAS PROVED ITSELF TO BE A LEADER IN
MANY OF THE MARKETS THAT IT SERVICES WITH THE CAPABILITY TO EXPAND ITS BUSINESS
ACTIVITIES TO ADDITIONAL MARKETS, WHICH WILL ENSURE ATTRACTIVE GROWTH PROSPECTS
FOR THE GROUP. THE FORECAST EARNINGS FROM CEDEF WILL MAKE A SIGNIFICANT
FOREIGN-BASED EARNINGS CONTRIBUTION TO DECILLION'S TOTAL EARNINGS.
5. FINANCIAL EFFECTS OF THE ACQUISITION
THE FINANCIAL EFFECTS OF THE ACQUISITION ON DECILLION'S EARNINGS PER SHARE
(HISTORIC AND FORECAST) AND NET ASSET VALUE PER SHARE ARE RECORDED IN THE TABLE
BELOW.
THE FIGURES IN THE TABLE HAVE BEEN CALCULATED ON THE FOLLOWING BASIS:
* THE COLUMN HEADED "BEFORE" REFLECTS THE PRO FORMA RESULTS OF DECILLION FOR
THE YEAR ENDED 31 DECEMBER 1998 AND THE FORECAST RESULTS FOR THE YEAR ENDING 31
DECEMBER 1999, AS DISCLOSED IN THE DECILLION PROSPECTUS DATED 26 FEBRUARY 1999
("THE PROSPECTUS"). THE NET ASSET VALUE PER SHARE AT 31 DECEMBER 1998 TAKES
INTO ACCOUNT THE PRIVATE PLACING CONTAINED IN THE PROSPECTUS; AND
* THE COLUMN HEADED "AFTER" INCLUDES CEDEF'S AUDITED RESULTS FOR THE YEAR ENDED
31 DECEMBER 1998 AND FORECAST RESULTS FOR THE YEAR ENDING
31 DECEMBER 1999, ADJUSTED TO BRING ITS ACCOUNTING POLICIES INTO LINE WITH
THOSE OF DECILLION. THE IMPACT ON EARNINGS PER SHARE HAS BEEN CALCULATED ON THE
ASSUMPTION THAT THE ACQUISITION WAS EFFECTIVE FROM 1 JANUARY 1998 AND 1 JANUARY
1999 FOR THE HISTORIC AND FORECAST YEARS RESPECTIVELY. THE IMPACT ON NET ASSET
VALUE PER SHARE HAS BEEN CALCULATED ON THE ASSUMPTION THAT THE ACQUISITION TOOK
PLACE ON 31 DECEMBER 1998. IN ALL CASES, IT HAS BEEN ASSUMED THAT THE FULL
PURCHASE CONSIDERATION IS SETTLED BY THE ISSUE OF NEW DECILLION SHARES AND ALL
CALCULATIONS HAVE BEEN PERFORMED ON A FULLY DILUTED BASIS.
                                                    BEFORE  AFTER  CHANGE
HISTORIC EARNINGS PER SHARE FOR THE YEAR
ENDED 31 DECEMBER 1998 (CENTS)                      10,3    16,8   63,1%
FORECAST EARNINGS PER SHARE FOR THE YEAR
ENDING 31 DECEMBER 1999 (CENTS)                     17,9    25,5   42,5%
PRO FORMA NET ASSET VALUE PER SHARE AT
31 DECEMBER 1998 (CENTS)                            88,0    81,0   (8,0%)
6. CONDITIONS PRECEDENT
THE ACQUISITION IS SUBJECT, INTER ALIA, TO THE FOLLOWING CONDITIONS PRECEDENT:
* THE COMPLETION OF THE INCORPORATION OF THE HOLDING COMPANY;
* THE CONCLUSION OF A NUMBER OF ANCILLARY AGREEMENTS TO THE ACQUISITION
AGREEMENT; AND
* THE APPROVAL OF THE JSE, THE SECURITIES REGULATION PANEL AND OTHER REGULATORY
AUTHORITIES INSOFAR AS SUCH APPROVAL IS REQUIRED. APPROVAL FOR THE ACQUISTION
HAS ALREADY BEEN RECEIVED FROM THE SOUTH AFRICAN RESERVE BANK AND THE FINANCIAL
SERVICES AUTHORITY IN THE UNITED KINGDOM.
7. SHAREHOLDERS' APPROVAL IN GENERAL MEETING
IN TERMS OF THE REQUIREMENTS OF THE JSE, THE APPROVAL OF DECILLION SHAREHOLDERS
OF THE ACQUISITION WILL BE SOUGHT AT A GENERAL MEETING TO BE HELD ON THE DATE
AS SET OUT IN THE CIRCULAR REFERRED TO IN PARAGRAPH 8 BELOW.
IN THIS RESPECT, SHAREHOLDERS HOLDING IN EXCESS OF 50% OF THE ISSUED SHARE
CAPITAL OF DECILLION HAVE IRREVOCABLY UNDERTAKEN TO VOTE IN FAVOUR OF THE
RESOLUTIONS NECESSARY TO APPROVE THE ACQUISITION.
8. DOCUMENTATION
FURTHER DETAILS OF THE ACQUISITION WILL BE INCLUDED IN A CIRCULAR,
INCORPORATING A NOTICE OF GENERAL MEETING OF DECILLION SHAREHOLDERS, WHICH WILL
BE POSTED TO SHAREHOLDERS WITHIN 28 DAYS OF THE PUBLICATION OF THIS
ANNOUNCEMENT.
JOHANNESBURG
27 MAY 1999
MERCHANT BANK
BRAIT MERCHANT BANK LIMITED
(REGISTRATION NUMBER 60/03893/06)
ATTORNEYS
JOWELL, GLYN & MARAIS INC
(REGISTRATION NUMBER 90/00849/21)
UK SOLICITORS
SPONSORING BROKER
DECILLION SECURITIES (PTY) LTD
(REGISTRATION NUMBER 96/05088/07)
MEMBER OF THE JOHANNESBURG STOCK EXCHANGE



                                        
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